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CFD trading vs share trading
Discover the main differences between CFDs and share trading, as well as the unique advantages and disadvantages of each. Want to learn more about trading CFDs with us?
Start trading today. For account opening enquiries call 1800 601 799 between 9am and 6pm (AEST) weekdays, or email newaccounts.au@ig.com.
What’s the difference between CFD trading and share trading?
The main difference between CFDs and share trading is that CFDs are leveraged, while share trading is non-leveraged. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. With us, if you do not want to trade CFDs, you can also trade shares in a share trading account.
- With CFDs, you’ll be taking a position on price movements – without taking ownership – and putting a margin amount down as leverage to open your position. This increases both profits and losses
- When investing in shares, known as share trading with us, you’re taking direct ownership of the asset, for example company shares.1 You’ll need the full value of the position upfront
We offer CFD trading on shares, indices, commodities, cryptos, forex, options, futures and more. Share trading is available for investing in shares and ETFs.
CFD trading explained
When you trade CFDs, you’re entering into a contract for difference (CFD), which is an agreement to exchange the difference between the opening and closing price of your position.
CFDs are often used when wanting to trade tactically on shorter-term price movements or hedging other existing positions. This is because CFD trades enable you to take a position on the price of an asset by going long (buying) or going short (selling).
One of the main benefits of CFD trading is the ability to use leverage, giving you full market exposure while only having to commit a deposit to open your position (known as a margin). So, if you wanted to open a A$100 CFD trade on HSBC shares, you’d put down a margin (often 20%) to trade the movement of HSBC’s share price – an initial sum of A$20.
But, trading with leverage carries risk. While it can amplify your profits, it can also magnify your losses. That’s because any profit or loss is calculated using the full size of the position, rather than your margin amount. So, with our HSBC example, your profit or loss would be calculated on the full A$100, not your A$20 margin. Learn how to manage your risk.
Share trading explained
When you buy shares, you’re taking direct ownership of shares in a company or ETF. Because of this, investing is popular among those who have a positive long-term outlook on that share or ETF. Any person who buys shares outright will also receive possible dividend payments and gain voting rights.
Leverage isn’t available when you’re investing directly, so you’ll have to commit the full value of the position upfront. But, this also means that your maximum risk is capped at the total cost of your investment. For example, if you bought $1000 worth of shares, the maximum you could lose is $1000 – assuming that the share price falls all the way to zero.
Remember that, when you invest, you can only profit when share prices or the value of an ETF rises above the price that you opened your investment. This is different to CFD trading, which enables you to profit from shares or ETFs that are rising or falling in value.
CFDS vs share trading: a comparison
| CFD trading | Share trading | |
| Which markets are available? | 17,000+ markets including shares and ETFs, indices, forex pairs, cryptos, commodities and more. | 11,000+ global shares and ETFs. |
| What is the deposit required to open a position? | Initial outlay for leveraged trades is 20%-25% of the total position size or, in the case of forex CFDs, from 3.33.2 However, with share CFDs, it’s important to remember that you would pay a commission amount after opening the position. | Investors pay the full value of the position upfront. |
| Can you go short? | Yes, you can go long and speculate prices rising, as well as go short to speculate on prices falling. | Not as standard. To short stocks with traditional short-selling, investors need to borrow shares, likely from a broker, sell those shares and then buy them back later. However, we don't offer this. |
| What are the trading or dealing hours? | 24-hour CFD trading on forex and major stock indices.3 We also offer weekend trading on selected markets. However, all spot positions left open after 9am AEDT (10pm UK time) are subject to additional overnight funding charges. | Access our exclusive after-hours trading on US shares. Otherwise, deal when the underlying exchange or market is open. |
| Do you get shareholder privileges and dividends? | No shareholder privileges, but positions are adjusted to offset changes from dividends. | With shares and ETFs, you’ll receive dividends if they’re paid. Owning shares may also grant you voting rights in company decisions.1 |
FAQs
Can I open a position on a company’s shares by using CFDs or share trading?
With us, you can take a position on shares with CFDs (contracts for difference) and via share trading. Buying shares lets you take direct ownership of shares, while CFD trading lets you predict share prices without having to own them. When you buy shares, you can profit if the share price rises above what you bought them for. When you trade CFDs, you can profit from prices that are rising by going long, or from prices that are falling by going short.
What is the difference between share CFDs and share trading?
One difference is that trading share CFDs won’t give you ownership of the shares in question, while share dealing will. But share CFDs do enable you to take a position on share prices rising by going long, as well as falling by going short. This isn’t available when investing in shares, but you can profit from upwards movements in a share’s price.
For this reason, CFDs are also more complex financial products, which can be higher risk trades than share trading. This is because, with CFDs, your profits and losses can far outweigh your initial outlay.
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1 When investing with us, you’ll do so via our share trading platform using our custodial model. This means that we manage, hold and safeguard securities you choose to buy and sell on your behalf. Via our custodial model, you’ll be able to buy and have a stake in actual assets – for example, shares in an ASX 200-tracking ETF or ASX 200-constituent company. You’ll also be entitled to dividends if any are paid, and granted voting rights if applicable.
2 View our CFD share trading margin rates.
3 This excludes 9am to 7pm (AEDT) on Saturdays (times do change when daylight savings ends/starts across AU/UK/US timezones). Only selected indices and the GBP/USD forex pair are available for weekend trading.
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Disclaimers
- CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You do not own or have any interest in the underlying asset. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. Please consider the Margin Trading Product Disclosure Statement (PDS), Risk Disclosure Notice and Target Market Determination before entering into any CFD transaction with us.
- The value of shares, ETFs and ETCs bought through an IG share trading account can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results.
- Please ensure you fully understand the risks and take care to manage your exposure.
- The information on this website is prepared without considering your objectives, financial situation or needs. Consequently, you should consider the information in light of your objectives, financial situation and needs.
- This website is operated by IG Australia Pty Ltd. IG Australia Pty Ltd is located on Level 32, Queen & Collins, 376-390 Collins Street, Melbourne, VIC 3000. ABN 93 096 585 410, Australian Financial Services Licence No. 515106. Derivatives Issuer Licence in New Zealand FSP No. 684191, NZBN 9429047618251.